Quantitative and Qualitative Factors in Decision Making

Quantitative and Qualitative Factors in Decision Making

Quantitative Factors

Investment Appraisal • Payback period • NPV • ARR

Quantitative Factors • Provide a numerical basis for decision making – reduces decisions to looking at a monetary value placed on different choices, e.g. • Forecasted sales figures for the next 3 years • The cost of a series of redundancies against the longer term financial benefits to the firm of this process

Quantitative Factors • But: such data provides only part of the story • Other factors need to be taken into account, particularly the effects of decisions on stakeholder groups and their response to such decisions, e.g. • The takeover of Manchester United by Malcolm Glazer might make financial sense but the reaction of the supporters might make the move unworkable

Qualitative Factors

Qualitative Factors • Qualitative factors look to take account of these other issues that may influence the outcome of a decision • Can be wide ranging and especially need to consider the impact on human resources and their response to decisions

SWOT • A decisions (for example, investment in a new production plant) could be considered not only in financial terms but also to apply other techniques of decision making to look at wider issues: • A SWOT analysis might be part of this: • Strengths • Weaknesses • Opportunities • Threats

PEST • Might also need to factor in other external issues that might influence the decision making process which can be summarised as: • Political • Economic • Social • Technological • Political could be in its widest sense, e.g. the internal politics of a firm as well as the national and international political effect

PEST • The decision to site a series of wind turbines in a coastal area might be justified on financial grounds but: • What is the reaction of the local community? • Does government policy support such planning developments? • Are there social impacts – e.g. noise pollution, damage to eco-systems, etc? • Such factors may make the difference between success and failure

Human Resources Management • Impact on a firm’s human resources is essential to consider, in particular the effects on: • Motivation • Morale • Recruitment and Retention • May be difficulty to assess and measure • May need to distinguish between short term effects and long term

Stakeholder Analysis • Wider impacts on stakeholder groups may also be necessary, such stakeholders include: • Employees • Shareholders • Managers • Environment • Local Community • Suppliers • Government • Consumers

Decision Making • Eventual decision may rest on the balance between the perceived effects of quantitative and qualitative • If the long term effect on the workforce for example was to reduce productivity or increase absence because of the impact on motivation and morale, the fact that a decision makes financial sense may be shelved! • Qualitative by its nature, therefore, is very subjective

Quantitative and Qualitative Factors in Decision Making